OneLBriefs

Empro Manufacturing v. Ball-Co Manufacturing

7th Circuit Court - 1989 (870 F.2d 423)

Facts:

After preliminary negotiations, P sent D a letter of intent to purchase the assets of D.

The letter of intent stated that "the general terms and conditions of such proposal (which will be subject to and incorporated in a formal, definite, Asset Purchase Agreement signed by both parties)".

It also stated that the purchase was subject to the final agreement and the approval of P's shareholders and board.

D decided it wanted to back out of the deal and sought other buyers.

P asked for a temporary restraining order that would keep D from doing so.

Procedural History:

District Court found for D, dismissed the complaint, no contract.

7th Circuit affirmed, found for D, no contract.

Issues:

Can the leaving open of some terms of an agreement be construed as lack of manifestation of intent by the parties to be bound?

Holding/Rule:

The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Reasoning:

Intent in contract law is objective rather than subjective.

If intent were wholly subjective, there would be no parol evidence rule, no contract case could be decided without a jury trial, and no one could know the effect of a commercial transaction until years after the documents were written.

"Subject to" a definitive agreement appears twice in the letter of intent. The letter also recites that it contains the general terms and conditions, implying that each side had the right to make additional demands.

The clause about the return of earnest money makes it clear that P was free to walk at any time.

D also assumed that it could negotiate terms in addition to, or different from, those in the letter of intent. D's lawyer said that some clarifications are needed when he read the letter of intent.

Letters of intent and agreements in principle often do no more than set the state for negotiations on details.

Approaching an agreement by stages is a valuable method of doing business.

P claims that it is entitled to its reliance expenditures, but these expenditures are those normally associated with pre-contractual efforts.

Outlays of this sort cannot bind the other side any more than paying an expert to tell you whether the painting at the auction is a genuine Rembrandt compels the auctioneer to accept your bid.